What is Per Diem?
Per diem is of Latin origin which means “by day” is a daily allowance for just two specially designed travel expenses. The basic constituents of the U.S per diem are lodging, meals, and incidentals. The IRS claims per diem are the maximum allowable rate paid by the U.S government to workers traveling away from their home.
The Newly Announced Per Diem Rates For Travelling Taxpayers
Having said that per diem is for federal employees who travel away from their home, you should be aware by now that traveling away from home for business requires keeping up with a lot of expenses ranging from hotel bills to taxis to tips offered. However, the IRS in a bid to make things easier allows the use of per diem rates. Per diem rates equivalent to a regular amount paid to employees to compensate for lodging meals and incidental expenses paid on a business trip can also be used for federal income tax purposes.
How Does Per Diem Rates Work?
Whenever an employer uses per diem rates to pay his employees for lodging and meal cots or for anyone alone, those per diem rates aren’t as part of the employees’ wages that can be taxed provided there is the provision of an expense report and these payments are not more than the federal per diem rate. The conditions that abolish the above statement are inadequacy to provide expense report or payments more than the federal per diem rate.
Travel expenses can be considered also, only when your work requires that you’re from your tax home for a period substantially more than what an ordinary day would involve, at this stage travel expenses are considered business expenses. Certain payments made such as the transportation between work and home, where you eat and mailing costs can no longer be referred to as Incidental expenses. However, you can request reimbursement from your employer, which in turn is limited to people who are not self-employed because self-employed persons can only use per diem rates for meal costs. So, they must keep excellent records and use exact figures.
The New Per Diem Rates
Since the cost of living is always changing, there’s need for a yearly change in per diem rates. The latest revision becoming effective October 1, 2017. These numbers can be used on or after this date for per diem allowances which includes those for incidental expenses, transportation etc.
However, the special meals and incidental expenses (M&IE) per diem rates for taxpayers in the transportation industry experienced no change as the rates announced the year before is the same as the newly announced rate. $63 for any locality of the visit in the U.S and $68 for those outside the U.S.
The M&IE includes all meals, room service laundry dry cleaning, pressing of clothes, fees, and tips for persons who provide services such as food servers. Incidental expenses have a per Diem rate of $5 and it includes fees and tips paid at lodging.
Since the cost of travel can vary depending on where - and when - you're going, special rates have been employed for certain locations. Using the high-low substantiation method, the per diem rates are $284 for travel to any high-cost locality and $191 for travel to any other locality within the continental United States. The meals & incidental expenses only per diem for travel to these destinations is $68 and $57 respectively.
Here is a list of the high-cost localities which can be found in the most recent IRS Notice:
However, some localities have been removed and they include:
The following localities have changed the portion of the year in which they are high-cost localities:
The entire high-cost localities list together with more useful per diem information can be found in Notice 2017-54 which will be in IRB 2017-42, dated October 16, 2017.
